The Cost of Risk Score and Star Rating Growth: Insights for Future Medicare Advantage Innovation Models

Structured abstract Introduction The Centers for Medicare and Medicaid Services (CMS) may test a new Medicare Advantage (MA) innovation model for achieving broader Medicare efficiency. Informed by the MA Value Based Insurance Design (VBID) model experience, we simulated minimum bid discounts and discussed strategies that would be needed to offset potential costs from plan risk score and star rating growth effects. Methods Using VBID evaluation data, we quantified the challenge CMS faces related to risk score and star ratings growth by calculating simulated payments to plans and bid discounts needed to achieve target savings. Results Had CMS imposed minimum bid discounts (holding model participation constant), we estimated that an average 7% bid discount for VBID plans could have achieved budget neutrality. Alternatively, to achieve 2% CMS savings, VBID would have required 14.5% lower plan bids. Conclusion Small risk score and star rating growth can jeopardize the sustainability and value of MA innovation models, and only a small share of bid discounts pass through to Medicare under MA payment policies. To achieve savings in future MA innovation models, we propose a combination of design features like minimum bid discounts, alternate risk score and star rating methodologies, stop-gap measures, and budget neutrality constraints.